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Rating Action:

Moody's downgrades $17 million of Subprime RMBS from various issuers in 1998

24 Mar 2011

New York, March 24, 2011 -- Moody's Investors Service has downgraded the ratings of 9 tranches from 3 Subprime deals issued by Lehman Home Equity Loan Trust and Southern Pacific Secured Asset Corporation. The collateral backing these deals primarily consists of first lien, fixed and adjustable rate Subprime residential mortgages.

In addition, Moody's has withdrawn the rating of one tranche from Norwest Asset Acceptance Corporation, Series 1998-HE1. Moody's Investors Service has withdrawn the credit rating pursuant to published credit rating methodologies that allow for the withdrawal of the credit rating if the size of the pool outstanding at the time of the withdrawal has fallen below a specified level. Please refer to Moody's Investors Service Withdrawal Policy, which can be found on our website, www.moodys.com.

Moody's current RMBS surveillance methodologies apply to pools with at least 40 loans or a pool factor of greater than 5%. As a result, Moody's may withdraw its rating when the pool factor drops below 5% and the number of loans in the pool declines to 40 loans or lower unless specific structural features allow for a monitoring of the transaction (such as a credit enhancement floor).

RATINGS RATIONALE

The actions are a result of deteriorating performance of Subprime pools securitized before 2005. Although most of these pools have paid down significantly, the remaining loans are affected by the housing and macroeconomic conditions that remain under duress.

The actions reflect Moody's updated loss expectations on Subprime pools issued from prior 2005.

The principal methodology used in these ratings was "Pre-2005 US RMBS Surveillance Methodology" published in January 2011.

Moody's final rating actions are based on current ratings, level of credit enhancement, collateral performance and updated pool-level loss expectations relative to current level of credit enhancement. Moody's took into account credit enhancement provided by seniority, cross-collateralization, excess spread, time tranching, and other structural features within the senior note waterfalls.

The above mentioned approach "Pre-2005 US RMBS Surveillance Methodology" is adjusted slightly when estimating losses on pools left with a small number of loans to account for the volatile nature of small pools. Even if a few loans in a small pool become delinquent, there could be a large increase in the overall pool delinquency level due to the concentration risk. To project losses on pools with fewer than 100 loans, Moody's first estimates a "baseline" average rate of new delinquencies of 11% for pools originated in 2004 and prior). The baseline rate is generally higher than the average rate of new delinquencies for larger pools. Once the baseline rate is set, further adjustments are made based on 1) the number of loans remaining in the pool and 2) the level of current delinquencies in the pool. The fewer the number of loans remaining in the pool, the higher the volatility in performance. Once the loan count in a pool falls below 75, the rate of delinquency is increased by 1% for every loan less than 75. For example, for a pool with 74 loans from the 2004 vintage, the adjusted rate of new delinquency would be 11.11%. In addition, if the current delinquency level in a small pool is low, future delinquencies are expected to reflect this trend. To account for that, the rate calculated above is multiplied by a factor ranging from 0.85 to 2.25 for current delinquencies ranging from less than 10% to greater than 50% respectively. Delinquencies for subsequent years and ultimate expected losses are projected using the approach described in the methodology publication.

Certain securities, as noted below, are insured by financial guarantors. For securities insured by a financial guarantor, the rating on the securities is the higher of (i) the guarantor's financial strength rating and (ii) the current underlying rating (i.e., absent consideration of the guaranty) on the security. The principal methodology used in determining the underlying rating is the same methodology for rating securities that do not have a financial guaranty and is as described earlier. RMBS securities wrapped by Ambac Assurance Corporation are rated at their underlying rating without consideration of Ambac's guaranty.

The primary source of assumption uncertainty is the current macroeconomic environment, in which unemployment levels remain high, and weakness persists in the housing market. Overall, Moody's assumes a further 5% decline in home prices with stabilization in late 2011, accompanied by continued stress in national employment levels through that timeframe.

For more information please see www.moodys.com.

Moody's Investors Service received and took into account one or more third party due diligence reports on the underlying assets or financial instruments in this transaction and the due diligence reports had a neutral impact on the rating.

Complete rating actions are as follows:

Issuer: Lehman Home Equity Loan Trust 1998-2

A-2, Downgraded to Aa3 (sf); previously on Apr 8, 2010 Aaa (sf) Placed Under Review for Possible Downgrade

M-1, Downgraded to B3 (sf); previously on Apr 8, 2010 Aa2 (sf) Placed Under Review for Possible Downgrade

M-2, Downgraded to Caa1 (sf); previously on Apr 8, 2010 A2 (sf) Placed Under Review for Possible Downgrade

B-1, Downgraded to Caa3 (sf); previously on Apr 8, 2010 Baa3 (sf) Placed Under Review for Possible Downgrade

Issuer: Norwest Asset Acceptance Corporation, Series 1998-HE1

A, Withdrawn (sf); previously on Nov 17, 2008 Upgraded to Aa2 (sf)

Financial Guarantor: Ambac Assurance Corporation (Segregated Account - Unrated)

Issuer: Southern Pacific Secured Asset Corp 1998-01

A-1, Current Rating at B3 (sf); previously on Feb 18, 2009 Downgraded to B3 (sf)

Underlying Rating: Downgraded to Ca (sf); previously on Apr 8, 2010 Caa2 (sf) Placed Under Review for Possible Downgrade

Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3, Outlook Negative on Jun 25, 2009)

A-6, Current Rating at B3 (sf); previously on Feb 18, 2009 Downgraded to B3 (sf)

Underlying Rating: Downgraded to Caa1 (sf); previously on Apr 8, 2010 B3 (sf) Placed Under Review for Possible Downgrade

Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3, Outlook Negative on Jun 25, 2009)

A-7, Current Rating at B3 (sf); previously on Feb 18, 2009 Downgraded to B3 (sf)

Underlying Rating: Downgraded to Caa1 (sf); previously on Apr 8, 2010 B3 (sf) Placed Under Review for Possible Downgrade

Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3, Outlook Negative on Jun 25, 2009)

Issuer: Southern Pacific Secured Assets Corp 1998-2

A-7, Current Rating at B3 (sf); previously on Jul 2, 2009 Downgraded to B3 (sf)

Underlying Rating: Downgraded to Caa2 (sf); previously on Apr 8, 2010 B3 (sf) Placed Under Review for Possible Downgrade

Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3, Outlook Negative on Jun 25, 2009)

A-8, Current Rating at B3 (sf); previously on Jul 2, 2009 Downgraded to B3 (sf)

Underlying Rating: Downgraded to Caa1 (sf); previously on Jul 2, 2009 Downgraded to B3 (sf)

Financial Guarantor: MBIA Insurance Corporation (Downgraded to B3, Outlook Negative on Jun 25, 2009)

A list of these actions including CUSIP identifiers may be found at:

Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF240709

A list of updated estimated pool losses and sensitivity analysis is being posted on an ongoing basis for the duration of this review period and may be found at:

Excel: http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF237255

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Edward Hou
Associate Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Amelia (Amy) Tobey
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades $17 million of Subprime RMBS from various issuers in 1998
No Related Data.
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